UPDATE 1-High energy costs could hurt German industry

Thu Nov 8, 2012 12:00pm EST

* U.S. companies benefit from cheap shale gas - BDI

* German energy policy could cost $446.42 bln by 2030

* Asian industrials also worried by their high gas costs

By Henning Gloystein

LONDON, Nov 8 (Reuters) - German industrials are concerned they will lose a competitive edge against rivals in the United States, where a boom in unconventional shale gas production has led to a sharp drop in industrial energy costs, industry lobby group BDI said.

German energy costs, by contrast, are rising as its government has decided to exit nuclear power generation, invest billions of euros into expanding the renewable generation sector while largely relying on imports to meet its natural gas demand.

"There are some things that are beyond our control. At the moment, we are not benefiting from the development in the United States and I do not see that this will be the case in the future," BDI's director general Markus Kerber told Reuters on Thursday.

"In fact, I would rather expect the discrepancy in gas prices to grow in the mid-term," he added.

Germany's economy, Europe's biggest, relies heavily on energy intensive industries such as chemical production from industry leaders such as BASF or Bayer or the automobile sector.

Quoting industry experts, the BDI said the U.S. shale gas boom could lead to a re-industrialisation of the United States and warned this effect will not be replicated to the same extent in Europe.

"Therefore European industrial companies will in all probability have significantly higher electricity and gas prices for the foreseeable future than U.S. companies," the BDI said.

U.S. wholesale natural gas prices currently costs around $3.5 per million British thermal units (mmBtu), compared with $9 per mmBtu in Europe.

The lobby group said Germany's energy policy of abandoning nuclear power generation and investing heavily in renewables, which require government subsidies to operate profitably, would cost Germany between 150 billion and 350 billion euros ($446.42 billion) by 2030.

Kerber said shale gas exports to Europe were not economically viable yet, and therefore could not serve as a way to lower energy costs on the continent.

"To lower prices, we need a pan-European regulation and market design. The energy shift is a European project," he said.

The European Commission (EC) is also worried about high energy costs, and hopes the creation of a pan-European energy market will help bring prices down.

"We believe a functioning internal market will keep costs down," Commission spokeswoman Marlene Holzner said.

The EC's deadline for a single energy market is 2014, although it has said it is not expected to meet that.

"We have seen that the transition is very, very slow. That's something that will be tackled," Holzner said.

ASIAN INDUSTRIALS ALSO WORRIED

Similar concerns are also being raised in Asia, where industry makes up a large share of economic output in leading economies such as Japan and South Korea, who are the world's biggest importers of liquefied natural gas (LNG).

At $13.50 per mmBtu, Asian spot prices for LNG are even higher than in Europe.

"Japanese policy-makers are increasingly worried about the falling competitiveness of local industry due to an over reliance on Asian LNG supplies with non-flexible, higher pricing slopes," Jason Gammel, analyst at Australian bank Macquarie said in a report.

Rising dependence on natural gas imports risks driving key Asian economies such as Japan down in the global ranking of industrial economies.

In the first half of 2012, Japan bought 18.6 percent more LNG compared to the previous year, but the cost of these purchases rose 49.2 percent which was enough to drive Japan's first trade deficit in 31 years.

The crisis at Japan's Fukushima nuclear power plant in March last year and resulting idling of the country's nuclear power plant fleet spurred soaring imports of substitute fuels like LNG, causing a record 2.5 trillion yen ($31.30 billion) trade deficit in the first half of 2012.

One hope for European and Asian industrials is that U.S. gas prices may not stay low forever.

Deutsche Bank estimated U.S. LNG exports would cost $9 to $10 per mmBtu between 2016 and 2018, similar to its estimates for British NBP hub spot gas prices, Europe's benchmark gas trading hub.